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Hedge Funds Increase Bearish Bets In Gold, Remain Bullish On Silver

Monday July 18, 2016 10:34

(Kitco News) - After hitting record levels for the last three weeks, hedge funds and money managers have started increase their bearish bets in gold and silver, according to the latest data from the Commodity Futures Trading Commission.

The disaggregated Commitments of Trader report (COT), for the week ending July 12, showed money managers decreased their speculative gross long positions in Comex gold futures by 3,964 contracts to 296,105. At the same time, short bets also increased by 9,983 contracts to 36,977. The latest data shows the gold market is net long by 259,129 contracts.

This is the market’s first drop in bullish speculative positioning since late May; however, the net length still remains elevated as it is only down 5% from the previous week’s historic highs.

Gold prices hit their highest level in more than two years at the start of the survey period; however, the consistent selling pressure caused August gold futures to end the period down 1.7%.

For some analysts, the shift in speculative positioning could be the start of a new correction phase for the gold market.

Analysts from Commerzbank said in a report Monday that they are expecting to see hedge funds continue to take profits in the gold market as U.S. bond yields creep higher and record levels in equity markets attract more investors.

Commodity analysts at Daily FX also said in a report that the reduction in net-long positioning raises the risk of lower prices in the near term.

“The short-term outlook indicates that gold prices are vulnerable to the downside and may need to retreat before another leg up,” they analysts said in a report Monday.

However, some analysts are still confident that gold prices can move higher and uncertainty in global financial markets will continue to attract investor demand.

In a recent interview with Kitco News, George Milling-Stanley, head of gold strategy at State Street Global Advisors, said that he doesn’t see signs that the gold market is over-extended, despite the near-record bullish positioning in the marketplace. He added that the drive into gold has been orderly considering events like the Brexit referendum, that as thrown global markets into turmoil.

“I don’t see evidence of hot speculative money entering the market,” he said. “I don’t think you should read too much into one report of one sector of the gold market. I think gold prices have room to move a little bit higher.”

In a report Friday, Bart Melek, head of commodity strategy at TD Securities, said that it is not surprising that hedge funds took some money off the table, “spooked that their record long holdings would lead to a sharp selloff.”

However, he remains bullish on prices in the near term.

“While it is not surprising to see gold retrace a bit on better (and more comforting to the Fed) data in the U.S., we would argue that positioning in dollar terms, and considered from a portfolio perspective, is not at all that cumbersome to witness a continuation higher for prices,” he said.

While gold prices are off record highs, the silver market continues to see strong investor demand with speculative positioning hitting another record high for its fifth consecutive week.

The disaggregated COT report showed money-managed speculative gross long positions in Comex silver futures rose by 2,949 contracts to 92,979. At the same time, short positions continued drop, falling by 1,933 contracts to 7,112. Silver’s net length now stands at 85,867 contracts.

Constant buying in the silver market drove the metal’s net length up by more than 10.5% compared to the previous week.

During the survey period September Comex silver futures rose 0.78%.

Analysts at Commerzbank said that they are expecting that the silver’s speculative interest has reached its peak in the near term.

“There is considerable correction potential for prices from this side,” they said.

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